Clearwire uses FCC delay to improve position

WASHINGTON-While major stakeholders and lawmakers haggle over how the Federal Communications Commission should proceed on the stalled $79 billion AT&T Inc.-BellSouth deal, Clearwire Corp. is cleverly taking advantage of the delay and political chaos to press for merger conditions that could better position the Craig McCaw-led company in the emerging wireless broadband space.
After Clearwire, lawmakers and consumer groups warned an AT&T-BellSouth union could create an anti-competitive threat in the wireless broadband sector-with some parties calling for divestiture of 2.3 GHz and 2.5 GHz assets held by the respective companies-AT&T offered a proposal to mollify critics. AT&T vowed to launch 10 new 2.3 GHz or 2.5 GHz wireless broadband trials by the end of 2007.
Consumer advocates and AT&T’s competitors, however, have not warmed to the telecom giant’s proposed conditions on wireless broadband or special access lines-the latter having emerged as arguably the biggest flashpoint in merger negotiations because so many different telecom sectors are affected.
Clearwire, for its part, has steered clear of divestiture talk and instead has directed energies toward crafting a solution that addresses anti-competitive wireless broadband concerns and its own strategic vision.
Make it interoperable
or sell it
Clearwire, attempting to secure additional spectrum to support its expanding wireless broadband reach, previously told federal regulators that a merged AT&T-BellSouth would have the largest wireline DSL broadband network, the largest national narrowband voice/data network, the largest HSDPA-capable wireless network and a nearly nationwide 2.3 GHz spectrum footprint.
With those looming realities, Clearwire believes there is room to negotiate on BellSouth’s 2.5 GHz holding in 11 markets in the Southeast. Clearwire claims that spectrum is not substantial to an AT&T-BellSouth combo to support an alternative wireless broadband platform, but is critical to other companies’ deployment of 2.5 GHz broadband systems. Companies like Clearwire.
As such, Clearwire has presented the FCC with two alternatives for dealing with the 2.5 GHz issue.
The first option would have AT&T voluntarily agreeing to sell all 2.5 GHz holdings “to a financially viable and operationally capable 2.5 GHz operator capable of providing wireless broadband services.”
The second way forward would have AT&T consenting to improving its wireless broadband commitment that’s currently on the table in merger talks at the FCC.
Clearwire suggested the following language: “Consistent with the Sprint/Nextel voluntary merger commitment regarding 2.5 GHz spectrum, AT&T commits to build out a wireless broadband network that permits interoperability with other wireless broadband networks using the same technology on its post-merger 2.5 GHz spectrum holdings to cover a number of Americans within its Southeastern U.S. footprint commensurate with the conditions in the Sprint/Nextel merger for a nationwide buildout, within a four-year timeframe consistent with the end of the 2.5 GHz transition to the new band plan and prior to the 2011 substantial service date for 2.5 GHz licenses. . AT&T agrees that, should it fail to meet these commitments within the timeframe specified, it will divest the 2.5 GHz spectrum consistent with Alternative 1 above not being utilized within 12 months of the completion date.”
The McDowell factor
Meantime, the question of whether FCC Commissioner Robert McDowell will be brought into the AT&T-BellSouth fray has created a political firestorm.
Key congressional Democrats took issue with FCC Chairman Kevin Martin’s request to have his general counsel rule whether McDowell can be ethically cleared and forced to participate in the consideration of the deadlocked telecom transaction.
“I hope that you will reconsider your decision to waive the ethical rules presently precluding Commissioner McDowell’s participation and return to serious negotiations with your other colleagues on the commission. These rules and rules of professional responsibility in general exist for a reason and should not be tossed away lightly,” said Sen. Daniel Inouye (D-Hawaii), in a letter to Martin. Inouye will chair the Senate Commerce Committee when the newly-controlled Democratic Congress convenes in January.
Reps. John Dingell (D-Mich.) and Edward Markey (D-Mass.), incoming chairmen of the House Commerce Committee and telecom subcommittee, asked FCC General Counsel Samuel Feder to answer more than two dozen questions by Dec. 11 in connection with Martin’s move to bring McDowell into the merger review in hopes of breaking a 2-2 deadlock. McDowell, one of the three Republicans on the five-member, GOP-led FCC, was disqualified from the AT&T-BellSouth proceeding in August because of past work as a lobbyist for a trade group whose members compete with AT&T and other Bell telephone companies.
Markey said he has grave concerns about the path Martin is headed down.
“I believe that forcing a commissioner to participate in a proceeding in which he or she would otherwise be recused is an extraordinary notion for an independent, impartial regulatory agency,” Markey said. “Agency commissioners must exercise independent, impartial, and unbiased judgment in matters before the commission.”
Markey said he hope to see the FCC merger review concluded in a timely fashion, but only with the kind of competitive and consumer safeguards that some mobile-phone carriers and consumer advocates are seeking. “If the FCC general counsel takes action to compel Commissioner McDowell’s participation, I strongly urge Commissioner McDowell to announce his intention to vote to abstain as a matter of principle,” Markey stated.
The Justice Department unconditionally approved the AT&T-BellSouth deal in October.
House Commerce Committee Chairman Joe Barton (R-Texas) and telecom subcommittee Chairman Fred Upton (R-Mich.) countered the Democratic reaction by telling Martin in a letter that “it is appropriate for the commission’s general counsel to examine whether the government’s interest would be served by permitting Commissioner McDowell to participate.”
Telecom analysts continue to predict the deal, which will consolidate ownership of Cingular Wireless L.L.C. within AT&T, will be approved. They say it is just a matter of when-this year or early 2007-and what conditions will be imposed by the FCC. The No. 1 wireless operator is 60-percent and 40-percent held by AT&T and BellSouth, respectively.
Jessica Zufolo, a telecom analyst at Medley Global Advisors, said the political crossfire over McDowell could make it impossible for the FCC to vote on the merger at its Dec. 20 meeting. The FCC three times has postponed votes on the AT&T-BellSouth deal.
“It now appears that, despite working for months to reach consensus with my colleagues, three attempts over the past six weeks to have this item considered at an open meeting, and countless hours of internal deliberations, the commission has reached an impasse,” said Martin in a Dec. 1 letter to key members of House and Senate commerce committees.
Martin cited as precedent an FCC general counsel determination in 2000 that brought former FCC chairman William Kennard into a stalemated broadcast matter he had previously been removed from for conflict-of-interest reasons. However, Inouye said the facts in that case are very different from those in the AT&T-BellSouth merger and that some lawmakers are not persuaded by the crude analogy.
Government ethics law allows the FCC’s Office of General Counsel to force McDowell into active duty if it concludes that “the interest of the government in the employee’s participation outweighs the concern that a reasonable person may question the integrity of the agency’s programs and operations.”
Ethics law forbids McDowell from bucking a general counsel finding requiring his involvement in the AT&T-BellSouth deal. The Justice Department’s approval of the deal without conditions unleashed a flood of criticism from consumer groups and Democrats at t
he FCC and on Capitol Hill.
Commissioners Michael Copps and Jonathan Adelstein, the agency’s two Democrats, have pressed Martin to attach various competitive and consumer safeguards to any approval of a major telecom transaction.
While holding only two votes on the five-member FCC, the combination of McDowell’s s disqualification and the Democrats’ return to power in Congress have given Copps and Adelstein more leverage than usual in seeking AT&T-BellSouth merger concessions. Top Democrats have suggested the FCC should hold off action on the AT&T-BellSouth deal until next year, stopping just short of asking Martin to further delay the vote.
Sprint Nextel Corp. and T-Mobile USA Inc., the third- and fourth-ranked national wireless carriers, have pushed the FCC to impose conditions on special access lines. The Government Accountability Office recently said competition in the special access market is limited in major markets.